Irish economy in recession as multinational-dominated sectors contract
Finance Minister Michael McGrath said that drop in GDP is partly due to the pharmaceutical sector seeing a fall-off in demand for covid-related product. Photograph: Leah Farrell
Ireland’s gross domestic product (GDP) fell by 1.9% between July and September marking the fourth consecutive quarter which has seen a decline and confirming the economy is in recession, the latest National Quarterly Accounts show.
The drop in GDP is being largely attributed to the contracting of multinational-dominated sectors which combined saw a decrease in output of 3.8% while exports - which are heavily dependent on these companies - declined by 2.1% while imports also dropped 1.7%.
Sectors dominated by multinationals - which includes industry as well as information and communications - account for more than half, 52%, of the total value added to the economy.
As a result of this dip in GDP, the Irish economy has now recorded four straight quarters of declines following a revision to the figures from April to June which had initially recorded a slight increase which is now a drop.
The industry sector, which includes pharmaceutical companies but excludes construction, declined by 3.5% quarter-on-quarter.
Finance Minister Michael McGrath said that GDP is not a “useful measure in assessing the living standards of domestic residents” but acknowledged its drop is due in part to “the ongoing fall-off in demand for covid-related pharmaceutical products”.
“We are also seeing a marked softening in global economic conditions,” he said.
The rest of the economy saw a mixed result over the quarter. The agriculture, forestry, and fishing sector shrank by 15.4% while finance and insurance as well as professional, administrative, and support activities fell by 8.5% and 0.3% respectively.
The arts and entertainment sector recorded a decline of 1.9%. The distribution, transport, hotels, and restaurants sector and the construction sector declined by 1.2% quarter-on-quarter.
However, the public administration, education, and health sector posted growth of 1.9% while the real estate sector expanded by 1.3%.
The information and communication sector - which includes tech companies and is also dominated by multinationals - saw an increase of 3.1% during those three months.
While the figures show GDP decline during the quarter, it is not the most reliable measure of the Irish domestic economy as it can be skewed by the presence of numerous large multinational companies based here.
The country’s gross national product - a measure of economic activity that excludes the profits of multinationals - saw a decline of 1.1% recorded for the quarter.
According to the CSO, modified domestic demand (MDD) - which is the preferred measure of the domestic economy which excludes multinational activity - was flat over the quarter.
On the flat rate of growth in MDD, Mr McGrath said the growth in consumer spending and a fall in investment spending largely off-set each other.
Between July and September, personal spending on goods and services increased by 0.7% to €32.3bn compared to the previous three months. However, capital investment was down by 7.4%, or €2.1bn.
Government spending on goods and services increased by 1.7% during the quarter.
Total employee wages were unchanged quarter-on-quarter but some areas saw large increases with agriculture, forestry, and the fishing sector up 47.1% while compensation in real estate activities was up 30.6%.
In total, six of the remaining eight economic sectors recorded a drop in employee compensation - the largest drop seen in construction down 6.9%.
